German public banks decide new deposit protection system
FRANKFURT May 21 Germany's public sector banks have restructured the deposit protection scheme for landesbanks and savings banks in a move that may see one regional savings banks' organisation break away from the rest after 40 years of unity.
Germany's six landesbanks and 415 savings banks run their own rescue fund. The European Union has asked them to make sure that 0.8 percent of the deposits are held in liquidity so customers can be reimbursed quickly in case of a bank failure.
By 2024, Germany's public sector banks need to increase the total reserves of the fund by 3 billion euros.
After months of discussions, a compromise had been found according to which the wholesale-funded landesbanks will stump up more money for the rescue fund than local home-loan banks affiliated with the savings banks.
If a landesbank collapses, rival public banks will be the first in line to jump in. In the financial crisis, almost all landesbanks fell victim to risky investments and had to be bailed out by the taxpayer.
However, the savings banks of Westphalia have unilaterally decided to only participate in a potential bank bailout if they would be able to vote on potentially opting out in case they would have to stump up more than 100 million euros.
This rule is incompatible with the new deposit protection scheme and the savings banks of Westphalia would have to leave the joint scheme if they do not change the clause, people familiar with the matter said.
A compromise is being sought that would enable them to stay within the scheme, they added.